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Car finance: Top 10 PCP myths busted

Millions of UK car buyers fundamentally misunderstand how PCP car finance works. Here we shatter ten of the biggest myths.

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PCP Myth #6: You can upgrade at any time

This one is technically true, but the catch is that it will usually cost you a large chunk of money to do so.

Dealers will usually start calling you about halfway into your PCP agreement with the “good news” that you are eligible for an early upgrade on your car. Sounds great, right? So what’s the catch?

The catch is that your car is almost guaranteed to be worth substantially less than what you still owe on it (negative equity), so you have to find a large chunk of money to clear that before then coming up with a deposit for your next PCP. The dealer will usually have some fantastic offer where they can help cover your shortfall, or let you add it onto your next agreement.

If the dealer is covering your negative equity using a deposit contribution or some other discount, that’s money that would normally be discounted off the new car, yet you’re using it to pay off the debt on your old car and then paying full price for the new car. Not such a great deal now, is it?

If the dealer is pushing you to add the negative equity onto your next finance agreement, run away as fast as your legs will carry you. It’s just asking for trouble. All you’re doing is making your next car a few thousand pounds more expensive without actually increasing its actual value, so you are simply magnifying your negative equity problem for next time.

For more information, check these out:

PCP Myth #7: Small deposits are better

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Dealers love telling customers that putting in a large deposit on a PCP is wasting your money, or pouring it down the drain, or burning pound notes, or crazy, or poor financial strategy. But once again, that’s simply not true.

With a PCP, you have to pay off the entire value of the car (minus the balloon amount if you don’t plan to keep it). If you put in a small deposit or no deposit at all, that makes your monthly payments higher. If you put in a larger deposit, your monthly payments will be lower. The more deposit you put in, the less money you are borrowing and the less interest you have to pay.

Everyone’s circumstances are different. For some people, a smaller upfront payment and a few extra pounds per month is a better option. Other people might have the cash available now and prefer to spend less each month. You’re getting to the same point at the end of the agreement, so it doesn’t matter which way you choose to get there.

What dealers generally don’t tell you is that they are being paid commission on every pound you borrow, so it’s in their interests for you to borrow more money. The only reason they want you to put in less cash and borrow more is so they will get a bigger commission payment from the sale. Make sure you are setting up your PCP in a way that works for you, not for the dealer.

For more information, check this out:

PCP Myth #8: You’ll get your deposit back at the end of the agreement

This one still confuses people, although not as many as most of the other myths on this list.

When we talk about your “deposit” on a car finance agreement, what we are really referring to (and what it should be called) is an “up-front payment” or “initial payment”. It’s not a security bond like you have when renting a house, it’s a payment.

It’s no different to your regular monthly payments; when you hand it over to the finance company, it’s gone and you’re never going to see it again. Wave goodbye.

For more information, check this out:

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Stuart Masson
Stuart Masson
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

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  1. Hi Stuart, thanks for the reply. I have heard they give you the absolute minimum of what they think the GMFV will be so chances are you will have equity to put towards the car for your next pcp deal , correct?

    • That certainly used to be the case, but not so much anymore. GFVs have been creeping up (being artificially propped up by manufacturer finance companies to help keep monthly payments down), while used car values have been coming down. The combined result of these two factors is that most customers are now finding they have little to no equity at the end of their PCP agreements, whereas previously they had a useful amount to put towards their next car. We explored this a few months ago in this article about falling new car sales.

  2. Im thinking of doing PCP on a car worth 36000, with the deposit at 8000 and 36 monthly repayments of 450. When that ends after 3 years and I decide to trade it in for a new one, Will I have to put 8k down as a deposit again to keep my payments at 450 a month?

    • Hi Rob. Assuming you don’t have any equity in the agreement, the same car price/spec/mileage/residual value and the same finance APR and term, then yes.

      In reality, your next car won’t be exactly the same and the finance agreement won’t be exactly the same. But in principle, yes.

      For more information, have a read of our guide to PCP car finance.

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